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Are You Stashing Cash in the Attic?

Is your basement an obstacle course of discarded yard sale purchases? Do you have a box of formal family silver hiding under the dust bunnies in the spare bedroom? Has your spouse deemed your Star Wars figurine collection unworthy of public display?

The opportunities to bust out the engraved ladle for black-tie sit-downs or play with your action figures (a.k.a. "dolls") may be few and far between, but still, that stuff is valuable. If it's damaged or destroyed, you'd face a personal loss, as well as a potential financial blow.

Whether you're looking to insure your belongings or sell them on an episode of "Cash in the Attic," you first have to determine the worth of your beloved object.

Are you sure you're covered?
If you haven't checked your homeowner's coverage in a while, you might want to get out your great-great uncle's magnifying monocle. Major insurers have been covering their keisters by cutting back on coverage.

Allstate (NYSE: ALL  ) recently announced that it's discontinuing most of its 400,000-plus earthquake insurance policies and is declining to renew storm coverage in some areas. Investors and individuals are also keeping an eye on coverage cuts by other insurers like Prudential (NYSE: PRU  ) , Progressive (NYSE: PGR  ) , and American International Group (NYSE: AIG  ) .

If your insurance company shrinks your safety net, you'll have to decide whether or not to purchase extra coverage. Prepare to be judged: Getting additional coverage means someone has to put a price tag on your beloved belongings.

Do you have a gift receipt for that?
Value isn't always subjective. Insurance claims adjusters have by-the-book methods for determining what it costs to replace things like CDs, electronics, vehicles, and furnishings.

But how exactly do you put a dollar value on your great-grandmother's engagement ring or a dresser that was your dad's when he was a boy? When it's hard to establish an item's worth -- say a piece of jewelry that was a gift, an heirloom quilt, or another special item -- consider having it appraised by someone who specializes in that field.

The American Society of Appraisers (ASA) certifies appraisers in the fields of gems and jewelry, business valuation, real property, personal property, and machinery and technical specialties. The International Society of Appraisers recognizes more than 100 areas of specialty knowledge.

It's important to find an appraiser whose expertise matches your purposes because you want the appraisal document to be airtight. If your home is completely destroyed, these papers are sometimes the only surviving proof that you are owed compensation. In many cases, an appraisal can serve as a legal document with the IRS and your insurance company.

Making sure the price is right
When possible, bring the actual item (and any related documents, such as receipts) for the appraiser to examine. Provenance -- where the item was made and who has owned it -- is critical in determining the value of some items. Be sure to share everything you know about the object's origin and where and when it was purchased.

An appraiser will likely need to do some research to determine your item's worth. They'll consult databases and books, and look up comparable sales. This can take days or weeks, or in the case of valuing business equipment or large lots, maybe even months.

An appraiser will then provide a written report that will describe the item in detail so it can be identified without a photo, the date of the inspection, the effective date of value, the reason for the appraisal (e.g., insurance, estate planning), an explanation of how the value was determined, and which valuation method was used.

There are three main valuation methods:

Replacement value: This is most often used for insurance purposes. It is the full retail price required to replace the item with something of like kind and quality. (There are some variants used, such as "reproduction cost," which is what it would cost to make a new version of an item that is no longer readily available using similar materials and craftsmanship.)

Fair value: This is the price you would get for an item if it were sold in a competitive, open market under good conditions. (You'll sometimes see "market value," which refers to what you'd get for an item if you were in a hurry to sell and the conditions weren't entirely favorable, such as at an estate sale or pawn shop).

Cash value: This amount factors in depreciation and the condition of an item. For example, a chipped Ming Dynasty vase is less desirable than one in pristine condition and would fetch less in a market where comparable ones of better quality existed.

Separating the trash from the treasures
If you have a house full of items and aren't sure which ones are worth getting formally appraised, you can hire an appraiser to do a verbal consultation. He or she will walk through the house eyeballing items, then provide rough guidelines as to what might be worth further inspection. This kind of verbal overview cannot be used for insurance or any legal purpose, but it can offer guidance to a family overwhelmed by an inherited household or collection.

According to the ASA, appraisals for insurance purposes can be done even after items are damaged, destroyed, or lost. A retrospective appraisal is easiest when the item can be produced (even if broken), but proof of an item's existence (such as a receipt or picture) can suffice. An appraiser will then establish the value of your property before it was ruined.

Even if your valuables aren't in foreseeable harm's way, consider documenting the important items in your life that you would want to try to replace if they were destroyed. Consider what it would be like to have to recreate on paper a life -- or plastic doll collection -- wiped out by disaster.

For more on covering your assets, read:

Dayana Yochim owns none of the companies or '80s action figurines mentioned in this article. She is the co-advisor for The Motley Fool's new personal finance service,GreenLight.


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